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There is a popular perception that entrepreneurs need to take on a lot of risk. Many successful entrepreneurs are perceived as having succeeded due to bold gambits. Yet, even in seemingly obvious cases, the reality is anything but.

Richard Branson, the founder of Virgin Group, is often portrayed as one that takes a lot of risk. Perhaps that is true when it comes to his recreational activities but his business strategy is very risk averse. Writing for Entrepreneur, in "Art of Calculated Risk," he says (bolds by me):

But while, to all appearances, we do have an unusually high tolerance for risk, our actions always spring from another principle: Always protect the downside. I think it should be a guideline for every entrepreneur -- or anyone involved in business ventures. For example, when we made the bold move of expanding from the music industry to the airline business, I set myself one condition: in our negotiations with Boeing, I stipulated that we could hand the plane back at the end of the first 12 months if people didn't like our business. That meant that I could see whether people liked the airline, but if it didn't work out, it wasn't going to bring everything else crashing down. My colleagues at Virgin Records would still have their jobs and a company to run!

We've made other bold moves -- into mobile telecommunications, financial services and health clubs, in countries all over the world. We just make sure we always have a way out if things go wrong. You have to protect your people. It's people who make a company exceptional or average.

So, if things don't work out, don't hesitate: take that escape hatch. That way, when all's said and done, you will be able to gather your team, discuss what happened and then embark on your next venture together.

These words can just as easily be penned by someone like Warren Buffett. I find it remarkable how similarly it echoes some of the words of Buffett. Yet, Branson is perceived as a bold and risky individual whereas Buffett is thought of as a bookish, calculating, individual.

Investors will be well served by applying Branson's thoughts. Namely, always consider the potential loss; have an alterate option if something doesn't work out (Warren Buffett is extremely skilled in devising backup plans); and sell out at a loss if things don't work (I think I made at least two mistakes in not exiting mistakes.)

The debate over whether entrepreneurial success depends on risky gambits is not new. In January of 2010, Malcolm Gladwell wrote an article for The New Yorker tackling this exact topic. If you haven't read it, I highly recommend the article, "The Sure Thing," to everyone. As usual, excellent and insightful writing combined with commentary about strategic decisions made by some successful entrepreneurs. I take exception to calling John Paulson an entrepreneur—I don't consider fund managers as entrepreneurs per se—but overall an interesting essay. What follows is a short excerpt (doesn't do justice to the article so read the full thing).

...The equipment was falling apart. The staff was incompetent. It had no decent programming to speak of, and it was losing more than half a million dollars a year. Turner's lawyer, Tench Coxe, and his accountant, Irwin Mazo, were firmly opposed to the idea. "We tried to make it clear that—yes—this thing might work, but if it doesn't everything will collapse," Mazo said, years later. "Everything you've got will be gone. . . . It wasn't just us, either. Everybody told him not to do it."

Turner didn't listen. He was Captain Courageous, the man with nerves of steel who went on to win the America's Cup, take on the networks, marry a movie star, and become a billionaire. He dressed like a cowboy. He gave the impression of signing contracts without looking at them. He was a drinker, a yeller, a man of unstoppable urges and impulses, the embodiment of the entrepreneur as risk-taker. He bought the station, and so began one of the great broadcasting empires of the twentieth century.

...

Williams writes that Turner was "attracted to the risk" of the deal, but it seems just as plausible to say that he was attracted by the deal's lack of risk. "We don't want to put it all on the line, because the result can't possibly be worth the risk," Mazo recalls warning Turner. Put it all on the line? The purchase price for WJRJ was $2.5 million. Similar properties in that era went for many times that, and Turner paid with a stock swap engineered in such a way that he didn't have to put a penny down. Within two years, the station was breaking even. By 1973, it was making a million dollars in profit.

...

The truly successful businessman, in Villette and Vuillermot's telling, is anything but a risk-taker. He is a predator, and predators seek to incur the least risk possible while hunting.

Giovanni Agnelli, the founder of Fiat, financed his young company with the money of investors—who were "subsequently excluded from the company by a maneuver by Agnelli," the authors point out. Bernard Arnault took over the Boussac group at a personal cost of forty million francs, which was a fraction of the "immediate resale value of the assets." The French industrialist Vincent Bolloré "took charge of the failing family company for almost nothing with other people's money." George Eastman, the founder of Kodak, shifted the financial risk of his new enterprise to his family and to his wealthy friend Henry Strong. IKEA's founder, Ingvar Kamprad, arranged to get his furniture made in Communist Poland for half of what it would cost him in Sweden. Marcel Dassault, the French aviation pioneer, did a study for the French Army that pointed out the value of propellers, and then took over a propeller manufacturer. When he started making planes for the military, he made sure he was paid in advance.

...

What Paulson's story makes clear is how different the predator is from our conventional notion of the successful businessman. The risk-taking model suggests that the entrepreneur's chief advantage is one of temperament—he's braver than the rest of us are. In the predator model, the entrepreneur's advantage is analytical—he's better at figuring out a sure thing than the rest of us.

...

This is exactly how Turner pulled off another of his legendary early deals—his 1976 acquisition of the Atlanta Braves baseball team.... First, he didn't pay ten million dollars. He talked the Braves into taking a million down, and the rest over eight or so years. Second, he didn't end up paying the million down. Somewhat mysteriously, Turner reports that he found a million dollars on the team's books—money the previous owners somehow didn't realize they had—and so, he says, "I bought it using its own money, which was quite a trick." He now owed nine million dollars. But Turner had already been paying the Braves six hundred thousand dollars a year for the rights to broadcast sixty of the team's games. What the deal consisted of, then, was his paying an additional six hundred thousand dollars or so a year, for eight years: in return, he would get the rights to all a hundred and sixty-two of the team's games, plus the team itself.